2017 BoP deficit forecast could be exceeded

THE Philippines incurred a deeper balance of payments (BoP) deficit of $678 million in July, the widest gap in eight months on account of foreign exchange operations of the Bangko Sentral ng Pilipinas (BSP) and national government debt payments.

An analyst said the full-year payments balance could exceed the central bank forecast given the latest data.

The gap widened from June’s $569-million shortfall and was a reversal from the $215-million surplus recorded in July last year.

July’s deficit was the widest since the payments balance slipped to a $1.67-billion shortfall in November last year.

“The higher deficit was attributed to foreign exchange operations of the BSP and to payments made by the national government for its maturing foreign exchange obligations during the review month,” the central bank said on Friday.

Outflows during the month were partially tempered by net foreign currency deposits of the national government and BSP income from investments abroad.

Data on national government debt, the Bangko Sentral’s foreign exchange operations and related figures for July have yet to be released.

The year-to-date BoP position stood at deficit of $1.38 billion, a reversal from $848-million surplus last year.

In June, the central bank revised its 2017 BOP forecast to a deficit of $500 million from its previous projection of a $1-billion surplus.

Following the release of the July figure, IHS Markit Asia Pacific chief economist Rajiv Biswas said: “This indicates that the BSP estimate of a BoP deficit of $0.5 billion for the 2017 calendar year may be exceeded, which could increase negative sentiment toward the Philippine peso.”

Biswas warned that if the payments balance remained in deficit and widened further over the medium term, it could become a greater downside risk factor for financial markets sentiment.

“The Philippine peso has depreciated moderately against the US dollar in recent weeks, mainly due to concerns about the widening current account deficit and declining foreign exchange reserves, albeit the official foreign exchange reserves level remains very high by international benchmark standards for assessing sovereign risk,” he noted.

He said the risk of moderate deterioration in the payments balance over the medium term needed to be seen against the overall macroeconomic outlook and the urgent requirement of upgrading vital infrastructure.

“Over the next 12 months, the GDP [gross domestic product]growth outlook will be supported by significant increases in infrastructure spending, with total infrastructure spending of P1.13 trillion targeted for 2018, with transport and social infrastructure being key priorities,” Biswas said.

“Improving infrastructure is very important for boosting the nation’s industrial and export competitiveness, as the Philippines is competing for foreign direct investment with other Asean [Association of Southeast Nations] countries like Malaysia, Thailand and Singapore which have invested heavily in high quality infrastructure,” he explained.

Biswas pointed out that the ability of the current administration to deliver such large increases in infrastructure spending would be helped by the tremendous progress made by Philippine governments since 2004 in terms of fiscal consolidation, the rapid pace of GDP growth and prudent fiscal management.

“Since 2004, the Philippines general government debt-to-GDP ratio has more than halved to a new record low of 34.6 percent in 2016. Therefore a modest increase of the BoP deficit may be seen as an acceptable trade-off by the Philippines government for the urgent task of upgrading vital infrastructure to improve long-term productivity and competitiveness,” he said.